How Inclusive Is Abenomics?; by Chie Aoyagi, Giovanni Ganelli, and Kentaro Murayama; imf working Paper No. 15/54; March 1, 2015
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- VI. P OLICY I MPLICATIONS
- Scenario result table, inclusive growth
20 VI. P OLICY I MPLICATIONS In this section, we present some scenario analysis, based on the results of our econometric results, of what would be the impact on inclusive growth of a “complete” Abenomics package. The scenarios present the marginal effect of changes in each policy variable, all other things held constant (text table). We use the base level of inclusive growth at the national level during 2000-04, which is -1.46 percent for the entire household sample and - 1.15 percent for the working-age household sample, as references to evaluate the magnitude of marginal effects. Table 3
All Households Working-Age Households
Incl. Growth Avg.
Growth Equity
Change
Incl. Growth Avg.
Growth Equity
Change Inflation (0.0 to 2.0%) 1.76 1.87 -0.14
Part- to Full-time job postings ratio (21 to 5%) 0.45 0.53 -0.08
0.63 0.64 -0.01 Female Labor Participation (47 to 52%) 0.83 0.63 0.20
1.13 0.78 0.35 Labor Input (-0.81 to 0.00) 0.42 0.40 0.02
0.31 0.29 0.02
change in CPI inflation from 0.0 percent (its value in 2012 before the start of Abenomics) to the BoJ target of 2.0 percent. When we use the coefficient based on the all sample estimate, the impact is that annual inclusive growth would be 1.76 percentage point higher. This is a large boost to growth, especially considering that it counters more than the base growth level at the national level. An even stronger result emerges for the working-age household case, in which the relative magnitude of 1.91 is more than enough to raise the negative growth above zero. It should be noted that such gains mostly come from the increase in the growth of average income, while the equity index deteriorates (i.e. inequality grows) as inflation rises. Furthermore, the quadratic form of the inflation in its specification implies that, given the coefficients, inflation has an optimal level for the average income growth. Beyond or below this optimal level (around 2 percent; or 3 percent if using the working-age households
deciles is uniform (i.e. it is interpolated by a linear function); and the mean of income is equal to the mean of the nine data points of the deciles. In the robustness checks we looked at the implications of changing these assumptions.
21 sample), the inflation rate shows a still positive (for a certain range), but diminished effect on average income growth. If the inflation further increases, then the marginal effects will become negative eventually. With the initial value of 0% inflation, about 4.5% is the upper threshold for marginal gains in inclusive growth from higher inflation (See Appendix C for a technical discussion). In our regressions, we have measured labor market duality as the ratio between the new job postings of part-time and full-time positions. The ratio of non-regular over total workers, which is the more usual “stock” measure of labor market duality at the national level (see for example Aoyagi and Ganelli 2013) and is currently about one third, cannot be used in our analysis because it is not available at the prefectural level. The “flow” measure of duality that we use in this study reached 21 percent in the 2000-04 period (as a 5 year average) while the pre-bubble level was around 5 percent in 1979-84. We consider a scenario where the ratio goes back to the pre-bubble level. With such a shift in labor market duality, inclusive growth would be 0.45 percentage points higher. The impact of the change in terms of composition is similar to one from inflation: the bulk of the boost to inclusive growth comes from increasing growth of the average income, while equality decreases rather slightly. In other words, dual labor market as measured by the “flow” share of part-time employment affects the productivity of the economy, rather than inequality at the aggregate level. Our duality variable is indeed correlated with the net capital investment (correlation coefficient around 0.6), suggesting that the measure is associated with the utilization of inputs. An interpretation of this result is that a lower share of part-time workers, while increasing productivity for the reasons discussed in the previous section (see also Aoyagi and Ganelli 2013), also increases inequality because it prevents some workers who can only work part-time from being employed. Female labor participation rates (of age above 15 years old) historically hovered around 48 percent, while male labor participation was about 70 percent in 2004. We consider a case where the female labor participation increases by 5 percentage points, which is an ambitious but feasible goal. On the basis of the estimates from the all sample analysis, this would boost to inclusive growth by 0.83 percentage points, about two thirds of the base growth level. Similar to reducing labor market duality, the estimated impact is even larger when estimating with the working-age household sample. Inclusive growth is boosted by 1.13 percentage points, while both average growth and equity index growth are raised by 0.78 and 0.35 percentage points, respectively. Labor input, measured by the man-hour, has been in decline since 1979, reaching negative growth at the national level since the 1990-1994 period. In our scenario analysis, we consider a rather conservative case in which reforms manage to shift the growth of labor input from negative to zero. In other words, our scenario assumes that the increase in the labor input just compensates for its natural decrease (i.e. population decline). At the stationary labor input level, inclusive growth would be 0.42 percent higher than the latest level in the 2000-2004 period, mostly derived from the average income growth. The relative magnitude of marginal
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